Our household debt levels & our devalued loonie

Our plunging dollar makes it official. Foreign investors are selling their holdings in Canada because they see better opportunities elsewhere. It’s not all esoteric Bay Street & Wall Street bankers, hedge funds and high finance in play here. The habits of everyday Canadians play a role, too.

Foreign investors used to look at Canada and see a rock of economic stability in an uncertain world. Now, they see an economy that has been fuelled in large part by an unsustainable run-up in debt. Housing market optimists may dispute this, but the pool of people able to take on big mortgages or draw way down on their lines of credit is shrinking. Less borrowing suggests less commerce, which is bad for a Canadian economy that is already running sluggishly enough to prompt concern about deflation, or falling prices.

The above-par heights reached by the dollar in recent years reflected the view that Canada was a much stronger proposition for investors than the United States. But in the past year, we’ve seen an accumulation of data showing the U.S. economy has more near-term upside than our economy.

The Canadian dollar is hovering around 90 cents (U.S.) at the time of this posting, down roughly 11 per cent from its year-ago level of $1.01 (U.S.). We should regard this decline as both a comment on our excessive household debt levels in Canada, and a call to change some of our plans and expectations.

Unless the Canadian economy rebounds quickly and bumps our dollar higher, we may as well get used to all things American being quite a bit more expensive to us. Unless you have already made the conscious decision to change your diet to a 100% “meatatarian” vis-a-vis a 100% Alberta beef based diet, prices of fresh produce on grocery shelves are already reality and you are already experiencing the pinch. If you happen to be one with the fiscal resources to be considering importing a U.S. car to Canada or buying a U.S. vacation property, you should see if there’s any cost benefit left to be had before pulling the trigger.

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